Business slugged for surplus

A shift to monthly company tax ­payments will shuffle $8.3 billion into the budget in a mid-year review which pledges surpluses that the Gillard government says will give the Reserve Bank of Australia more room to cut official interest rates.

The Mid-Year Economic and Fiscal Outlook [MYEFO] will pull back middle-class welfare benefits introduced by the Howard government, including the baby bonus and a rebate on private health insurance.

The changes will force the Coalition, which is sticking to its tough fiscal discipline rhetoric, to declare whether it will support government spending cuts ahead of next year’s federal election.

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The spending cuts and shift to monthly company tax payments will have to be voted on in Parliament.

Treasurer
Wayne Swan
said the government’s budget strategy, which involves $10.5 billion in net savings over four years to maintain budget surpluses, would protect jobs and economic growth, which he forecast would continue around its long-term average of 3 per cent.

“We haven’t taken any of the saves that we’ve made today lightly, but we’ve made sure that they don’t hurt the economy and don’t hurt the most vulnerable,’’ he said.

SWan refuses to rule out Further Cuts and Tax increases

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In a sign that global turmoil and volatile commodity prices would continue to threaten the surplus, Mr Swan wouldn’t rule out further spending cuts or tax increases.

He conceded more “structural" savings would have to be made to pay for the Gonski education plan and insurance scheme for the disabled.

Government tax revenue forecasts were downgraded by $20 billion over the four years ending 2015-16, driven mainly by expected lower company profits and less income from the minerals resource rent tax.

Companies will have to pay tax every month rather than quarterly, a change that will increase revenue by $5.5 billion in 2013-14.

The opposition said the move was emblematic of Labor’s budget ­“fiddles", which include pocketing extra dividends of almost $400 million from Medibank, $500 million from the Reserve Bank and more than $200 million from Australia Post.

With scarcely a third of the financial year over, Opposition Leader
Tony Abbott
said a third of the government’s projected surplus of $1.1 billion was gone.

“This is a government that will never, ever deliver an honest budget surplus. Even to deliver today’s cook-the-books surplus, families have been hit," Mr Abbott said.

“Wayne Swan is hurting families’ budgets so he can patch up the government’s budget. There are cuts to education, to health, to the baby bonus, there are cuts to superannuation – all cuts to a family’s budget."

Late changes make some figures redundant

The rush to release the mid-year review of the budget, which came out about a month earlier than normal, has seen many of the quoted figures in the document made effectively redundant by last minute changes to Treasury economic forecasts and Department of Finance spending estimates.

Government sources say the revised spending estimates and changes to economic forecasts will reduce the spending figures quoted in MYEFO.

The outcome of cabinet deliberations on a freeze on grants also didn’t make it into the document. Instead, these changes have been reflected in a $2.8 billion subtraction from spending recorded in the contingency reserve.

Mr Swan defended the revised budget outlook, which he said charted a course between demands for larger spending cuts and those wanting the government to delay the surplus this year, which is forecast at $1.1 billion, down $400 million from the May budget projection.

The surplus is forecast to reach $6 billion by the end 2015-16, down from $7.5 billion.

The downgrade means Australia will record accumulated surpluses over that period of $13 billion, 20 per cent less than was forecast just five and a half months ago.

“There is a very clear contrast between what we’ve done here and the slash-and-burn cuts made by state governments around this country, or would be made by Mr Abbott as he faces up to the fact that he has a $70 billion crater in his budget bottom line," Mr Swan said. “This government will always do everything possible to ensure that those on lower and middle incomes are looked after and benefit from the strong economy through a strong budget. We’ve given additional room for the Reserve Bank to move when it comes to monetary policy."

Cash rate to ‘broadly’ follow expecations

Treasury cut the expected revenue from the minerals resource rent tax by 32 per cent to $9.1 billion over the four-year budget forecasts from the $13.4 billion predicted in the budget. Prime Minister
Julia Gillard
personally negotiated the tax with the major mining companies.

Overall company tax receipts will be $2.4 billion lower this financial year and down $3.3 billion in 2013-14, mostly because of weaker resource sector profits.

The economy will expand 3 per cent in 2012-13 and 2013-14, Treasury forecasts. That is 0.25 of a percentage point slower than predicted in the May budget.

The terms of trade – a measure of income and export prices – will decline 8 per cent this financial year compared with the 5.75 per cent forecast at budget.

“While global headwinds, a high dollar and changing consumer behaviour are weighing on some sectors, the Australian economy is expected to outperform every major advanced economy this year and next, with growth underpinned by strong investment, strong growth in export volumes and solid growth in consumption," Mr Swan said in Monday’s statement.

He said suggestions that the government should have waited for the first set of revenue figures from the minerals resource rent tax before publishing MYEFO were “nonsense".

The FACT IS... WE’VE written down MRRT revenue: Swan

“The fact is that in this update we have written down MRRT revenue by over $4 billion – total [revenue] over the forward estimates is $9 billion," he said.

Since the budget, “iron ore prices plunged 30 per cent, they’re back up by about half of that now. Ditto with coking coal, plunging 30-odd per cent, thermal coal has been down 15 per cent. Some of that has come back, but what it did do for some months is impact on revenues across the board."

Asked if a further decline in commodity prices would prompt the government to seek further savings to protect its surplus, Mr Swan said that he would “make sure that our current economic settings match the economic circumstances, that our budget settings match the economic circumstances."

Shadow Treasurer
Joe Hockey
said the changes meant Mr Swan would effectively have 14 months of company tax revenue to spend next financial year, when an election was due.

“They are booking an extra $5.5 billion in next year, an election year, in order to get to surplus," he said.

Real government spending is forecast to fall 4.4 per cent, the largest amount since at least 1971, reducing outlays as a share of the economy to 23.8 per cent.

Private health insurance rebate cut

The government will save $700 million over four years by changing the private health insurance rebate and the baby bonus.

The $5000 payment for a first child will be cut to $3000 for subsequent children.

The budget update revealed a $1.2 billion spike in payments to cover rising costs in the Department of Immigration, most of which was attributed to the larger than expected number of asylum seekers arriving by boat.

The cost of establishing offshore processing on Nauru and Papua New Guinea was not revealed.

Mr Swan said the Australian economy stood out as a “beacon of strength" in a fragile global economic environment.

Regional growth had moderated as a result of events in the European and US economies, he said, with a knock-on effect in China and other Asian economies.

That in turn had a put a handbrake on tax revenues, which have been written down by $160 billion since the global financial crisis, according to the Treasurer.